Gail Kelly
has kept her critics at bay for the time being by producing the stand-out result of the banking reporting season, partly due to a prudent approach towards capital management and a multi-brand strategy that shows signs of working.

However, the market’s muted reaction highlights investors’ caution around what is expected to be an even tougher year for Australian banks.
Westpac
shares have had a good run recently, leaving little room for further upside in the short-term.

Like her peers at the other three major banks, Kelly has warned modest credit growth is expected to weigh on profits as subdued economic conditions keep Australians saving instead of borrowing. Westpac did not provide earnings guidance.

“Bank management teams are walking a tightrope, trying to deal with elevated funding costs and higher regulatory burdens in the face of a weakening economy, where impairments are increasing and growth is challening," KPMG’s head of banking, Asia Pacific, Andrew Dickinson, said this morning.

Westpac’s result was underpinned by higher Treasury income, cost controls and the bank’s sector-leading Tier 1 capital ratio of 8.2 per cent.

Kelly appears to have returned to favour since delivering a disappointing first-half result in May.

At the time chairman
Lindsay Maxsted
was forced to defend the bank’s “multi­-brand" strategy which some analysts criticised as being too high-cost in the current low-growth lending environment. Westpac also rejected suggestions that the arrival of Brian Hartzer to run the retail bank was a sign that succession planning was in full swing. Kelly has since indicated she is not going anywhere soon.

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Westpac was the last of the four major banks to report results today and while the Australian majors continue to outshine their overseas peers, they will struggle to replicate the earnings growth of recent years as they deal with increased capital requirements

KPMG estimates the four major banks collectively posted a cash profit after tax of $25.2 billion in fiscal 2012, a 3.7 per cent increase from a year ago.